SoftBank had offered to pay approximately $20.1 billion for 70% of Sprint Nextel, with 55% of the payment to be made in cash. DISH is offering a 13% premium to the value of the existing SoftBank proposal. DISH is also giving a higher cash value as well as a greater stake to existing Sprint Nextel shareholders in the new combined firm.

What Does the Deal Equate To?

Taking over the third-largest mobile carrier in the U.S., with 55 million subscribers, would allow DISH to offer video, high-speed internet and voice service across the country, both in and outside of the home. Although DISH does provide video service, its satellite internet service is not as fast as those from wired providers. Thus, through Sprint's established network, DISH would be able to enhance the services provided to its clients. Furthermore, the closure of this deal would also give DISH an ownership stake in Clearwire Corporation (CLWR), of which Sprint owns 51%.

With an ever-increasing emergence and affordability of smartphones and tablets, in the future the industry is expected to experience an exponential increase in mobile broadband traffic. Together with Sprint and Clearwire, DISH would own the largest portfolio of spectrum holdings, surpassing Verizon (NYSE:VZ) and AT&T (NYSE:T), as can be seen the graph below.

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The deal also enhances the company's available bandwidth. DISH combined with Sprint and CLWR would have an eight-lane highway, compared to the current four-lane highways owned by AT&T and Verizon each. DISH would have superior capabilities to enhance its position in mobile broadband.

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As can be seen by the data above, video is expected to experience the largest traffic in networking, comprising of around 50% of the total traffic, and with increasing importance of the mobile platform, DISH's movement towards mobile is one which would provide benefits over the long run.

Another benefit that the deal would give to DISH and Sprint Nextel is a lower churn rate. A single service provider is bound to face a higher churn rate, and as the services are increased the churn level slows down, as can be seen by the graph below.

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As per the graph, the average churn rate experienced by a single play service provider is the highest, and as the company includes more and more services, the churn rate decreases. Assuming DISH incorporates Sprint into its network, it would get a company that provides two services and that has the potential to move to quad play service with mobile video and fixed broadband. This would provide the company with lower churn, economies of scale, gain in market share and an increase in average revenue per user.

Apart from this, the companies would experience synergies and cost savings. According to the management of DISH, total present value of benefits through cost savings and lower capital expenditure, expected to be achieved with the business combination, are estimated to be at around $11 billion and $2 billion respectively. Benefits through cross selling are likely to be more immediate. Although there might be some overlap of clients, a merger would give DISH direct access to approximately 17 million households currently served by Sprint, and similarly Sprint would be able to directly target approximately 35 million subscribers to services provided by DISH. The expected increase in service subscribers for both DISH and Sprint Nextel can be seen in the graph below.

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The sale and marketing efficiencies through joint operations of call centers, billing and collections, direct marketing and retention organizations would also certainly improve margins and company profitability. The accumulated present value of all the synergies expected to be achieved through this business combination are estimated to be at around $37 billion.

Conclusion

DISH is offering Sprint Nextel shareholders a better alternative than the pending SoftBank proposal. Not only does it provide a superior value, it also provides for a greater ownership in a combined company that is well positioned to cope with future challenges. Sprint and DISH combined would be the only company in the U.S. industry that would provide complete broadband and data solutions to its subscribers. Currently, even without the merger, the mean analyst target price for DISH is $38.94. Due to the expected synergies and growth opportunities expected to come with the merger, if it is approved, I would expect the company's stocks to provide substantial returns. It is because of these reasons that I would give a buy recommendation for DISH stocks.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.